A bond Auction to Satisfy the DMO

The DMO may view Wednesday’s monthly auction of FGN bonds as a success. While it raised N99bn (US$320m) rather than its offer of N140bn, it was able to set marginal rates for all three bonds below the level of the previous month.

It was operating from a position of strength due to its successful front-loading of issuance. It has now raised N850bn (gross) in the half-year and is well on its way to the N1.25trn projection for the domestic financing of the 2017 budget. It has other, smaller strings to its bow such as the FGN savings bonds.

The DMO may justifiably feel that it has “done its bit” towards budget deficit financing with these auctions as well as the sales of the sovereign Eurobonds and the diaspora issue.

It would feel more comfortable with tangible evidence that the multilateral contribution from the World Bank and the African Development Bank is forthcoming. We note that these partners were to have helped finance the 2016 deficit.

Demand was again poor (N13bn) for the five-year benchmark. We understand that the paper is trading higher in the secondary market.

The DMO has additional flexibility in its issuance in the months ahead since it has announced it is to launch Nigeria’s first sovereign sukuk (Islamic bond) in naira to raise N100bn.